The Financial Services Tribunal (FST) set aside the debarment of a representative but did not send the decision back to the FSP for reconsideration after the FSP twice failed to follow the correct procedure.
“Since the respondent had two bites at the cherry already, it would be wrong to remit the matter to the respondent for reconsideration,” the tribunal’s deputy chairperson, Judge Louis Harms, said.
The FST’s decision in this matter is a case study of an FSP not adhering to the debarment provisions set out in the FAIS Act, even after the tribunal told it to follow the prescribed procedure after setting aside the first debarment decision.
The first debarment
The rep was accused of fraudulent transactions, and the FSP appointed a labour broker to conduct the disciplinary proceedings.
The rep resigned shortly before the disciplinary hearing, which was held in April 2022. The chairman proceeded in her absence and found the rep guilty as charged and recommended that she be dismissed.
The FSP informed the rep of the outcome of the disciplinary hearing and added that it would approach the FSCA for a debarment based on the dismissal and the charge of gross dishonesty.
The following month, the chairman considered the question of debarment in the light of her findings in the disciplinary hearing and recommended that the rep be debarred.
The FSP filed a debarment form with the FSCA, debarring the rep on the ground of gross dishonesty.
The rep filed a reconsideration application with the FST.
The FST’s decision draws attention to only one of the grounds on which the rep based the (first) reconsideration application: the notice of the FSP’s intention to debar the rep was not what it purported to be but conveyed an outcome, without affording her a reasonable opportunity to make representations.
The tribunal said the FSP failed to comply with the provisions of section 14(3)(a) of the FAIS Act, which states that before an FSP debars a person it must:
- Give adequate notice in writing to the person stating its intention to debar the person, the grounds and reasons for the debarment, and any terms attached to the debarment, including, in relation to unconcluded business, any measures stipulated for the protection of the interests of clients;
- Provide the person with a copy of the financial services provider’s written policy and procedure governing the debarment process; and
- Give the person a reasonable opportunity to make a submission in response.
The FST also drew attention to the fact that an FSP does not apply to the FSCA for the debarment of a representative. The FSP merely registers the debarment with the FSCA.
The debarment was set aside and remitted to the FSP.
The second debarment
In August 2022, the FSP issued a notice of its intention to debar the rep because she was found guilty of dishonesty and fraud during the disciplinary hearing held in April.
The rep was invited to deliver written submissions within seven days. No indication of a hearing date was given.
The FST said the FSP’s procedure governing debarments provides for “preferably” 30 days’ notification of the hearing.
It said the rep’s response to the allegations was “a bare denial”, alternatively that the acts of which she was accused did not amount to fraud but related to “internal administration”.
The rep was debarred again, which led to the second reconsideration application.
In its decision handed down in January, the tribunal again found problems with the procedure followed by the FSP. These were:
FSP did not follow its own rules
The disciplinary proceedings were not conducted as a debarment or a joint disciplinary/debarment proceeding and therefore did not follow the FSP’s own debarment rules, Judge Harms said. In particular, the chairman approached the matter on the basis that if someone does not attend such proceedings, that person waives the right to rely on procedural defects.
It was unclear what evidence the chairman considered
Judge Harms said it was unclear on what and whose evidence and which documents the chairman relied.
“There is an unsigned document written by an unnamed person containing allegations in support of the charge sheet – but that is all. The statement by the chairman that she had considered all the facts and evidence presented to her does not bear scrutiny – the record contains none of this.”
Material evidence was withheld from the rep
According to the FST, the principal case against the rep was based on 20 instances of fraud consisting of not informing clients of an administration fee and failing to disclose this to the FSP. But the particulars of these instances were not provided.
To conduct her defence against the debarment, the rep asked the FSP for information about the fraud cases. The FSP refused to provide it on the basis that it was either confidential information or trade secrets and because of “some or other provision” of the Protection of Personal Information Act. The labour consultant who was appointed to conduct the debarment proceedings upheld this objection as not unreasonable.
“Although a party to administrative proceedings is not entitled to discovery, the refusal to provide basic information necessary for conducting a defence was not only unreasonable; it was unlawful,” Judge Harms said.
“There is no way in which material evidence may be withheld from an opponent/accused on the basis that it is confidential information or for protection of personal information. It is not possible in criminal, civil or administrative law.”
Misapplication of the res judicata rule
The labour broker applied the res judicata (Latin for “a matter already judged”) rule, arguing that the chairman had found on the facts and evidence before her that the applicant lacks the qualities of honesty and integrity and should be debarred; therefore, she is to be debarred.
Res judicata was also the answer given by the FSP to the present application.
Judge Harms disagreed. He said the chairman made no final decision. She advised the FSP whether there were grounds for the summary dismissal of the applicant.
“The respondent acted on the advice/opinion and dismissed the applicant. In other words, the first decision was that of the respondent and not of the chairman. Thereafter, she advised the respondent to debar the applicant. That ‘decision’, if any, was void as held in the first decision. It was for the respondent to have made the decision, which it did by informing the Authority of the debarment.”
Judge Harms said the second labour broker also did not decide anything. She advised the FSP to debar the rep, and her advice was based on the opinion of the first broker.
“She did not consider the matter independently, and her decision to ignore the respondent’s procedure and deny the applicant basic access to the information was wrong.
“The respondent cannot rely on its own first invalid decision as a basis for res judicata. That would make a caricature of section 14.”
Set aside but not remitted
After setting aside the debarment for the second time, the FST did not send the decision back to the FSP. The tribunal said it did not believe the FSP would be able to make a decision that “will not have the appearance of bias”.
Section 234(1) of the Financial Sector Regulation Act states that in proceedings on an application for reconsideration of a decision, the FST may:
(a) Set the decision aside and remit the matter to the decision-maker for further consideration
(b) In the case of a decision of any of the following kinds, also make an order setting aside the decision and substituting the decision of the tribunal–
- A decision in terms of Chapter 13;
- a decision referred to in paragraph (b) or (c) of the definition of “decision” in section 218; and
- a decision of a kind prescribed by regulation for the purposes of this section; or
(c) Dismiss the application.
In paragraph (b) of section 218, “decision” means a decision by an authorised FSP in terms of section 14 of the FAIS Act in relation to a specific person.
In this case, the FST utilised its powers under section 234(1)(b) and substituted its own decision for that of the FSP’s.
